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Thursday, September 14, 2006

No New Data in the XM Satellite Upgrade, But Shares Up Over 10%

Shares of XM Satellite radio this morning are benefiting from a research call. Credit Suisse’s Bryan Kraft raised XMSR to "Outperform" from "Neutral" although it looks like the company maintained a $17 price target.

The research note isn’t really based on any startling new information, so the stock may be up on noise rather than news. We aren’t saying that it is a “bad call” or that there are fallacies in the analysis by any means, but that is how a trader may view this pop. It said that there is an attractive risk vs. reward because the company’s lowered subscriber additions (7.7 to 8.2 million instead of 8.5 million) it forecast in July make the estimates more achievable. It also says that declining gas prices and increased retail efforts will help Q4 sales. It even cited the launch of the Oprah Winfrey show. The note also says a potential combination with Clear Channel (CCU) would not add much long-term shareholder value, and that a deal there would be highly dilutive. It did note that a deal between Sirius (SIRI) and XM (XMSR) would add synergies of some $12 Billion.

Shares of XMSR are up 10.5% at $13.83 today, and shares of SIRI are up 3.4% to $4.17. You could probably expect that much of the XMSR move could be from short covering. It has already traded 6.8 million shares, just under a normal full day's average trading volume of 7.5+ million shares.

We have been critical that both XMSR and SIRI need to get their act together, and some recent announcements have been helping the companies go in the right direction. Shares of SIRI have recovered about 10% in the last month and shares of XMSR are now up over 20% in the same period.